MINCHEST LTD v. LAU TSUI KWAI AND OTHERS

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J U D G M E N T

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Chief Justice Li:

1. This appeal concerns a dispute between vendor and purchaser as to whether the vendor has shown good title.  The properties in question are held under Conditions of Grant entered into with the Government before 1 January 1970 and this case is only concerned with pre-1 January 1970 Conditions of Grant.  The matter turns on the proper interpretation of s. 14(1) and 14(2) of the Conveyancing and Property Ordinance, Cap 219 (“the Ordinance”).  Save where otherwise stated, references to sections in this judgment will be to sections in the Ordinance.

The facts

2. By three agreements dated 27 May 2005, following earlier provisional agreements, the appellant (“the purchaser”) agreed to purchase various properties in Cheong Nin Building, Kwai Chung, New Territories (“the properties”) from the various respondents (“the vendors”).  The total purchase price was $55 million.  The terms of the agreements in so far as they are material to this appeal were identical.  They provided for completion on or before 28 October 2005 and that time shall in every respect be of the essence.  The agreements were linked in that each provided for completion simultaneously with the others and that failure to complete under one agreement was deemed to be a refusal to complete under the other agreements.

3.  On 22 September 2005, pursuant to its obligation to show good title, the vendors’ solicitors sent to the purchaser’s solicitors certain title deeds.  These included a certified copy of New Grant No. 4699 (“the New Grant”) and also a certified copy of the occupation permit for the building dated 5 January 1973.

The New Grant

4.  The New Grant of the lot in question was dated 13 November 1969.  It contains the agreement between the Government and the grantee of the lot, Cheong Nin Investment Company Limited (“Cheong Nin”), one of the vendors in the present case.

5.  Under the New Grant, Cheong Nin’s obligations included the payment of premium and the fulfilment of the building covenant involving the completion of the building before the prescribed deadline and the expenditure of a minimum amount.  General Condition 8 provided that the fulfilment by the grantee of his obligations under the Conditions shall be a condition precedent to the grant or continuance of the tenancy and any default shall be deemed a continuing breach.  General Condition 9 gave the Government a right of re-entry in the event of breach of any conditions.

6.  General Condition 10 entitled the grantee to a Government lease for the lot in accordance with its terms

“	when the conditions herein contained have been complied with to the satisfaction of the District Commissioner, New Territories.”

The conditions contemplated in this Condition constituted the conditions precedent, compliance with which entitled the grantee to a Government lease.  Their identification is a matter of interpretation of the New Grant.  The conditions precedent would include conditions such as the payment of the premium and the fulfilment of the building covenant. 

The requisition

7.   The New Grant constitutes the root of title of the properties in question.  No Government lease has been issued.  On 27 September 2005, the purchaser’s solicitors raised four requisitions.  The relevant requisition (“the requisition”) read:

“	Please send us a certified copy of the Certificate of Compliance of New Grant No. 4699.”

8.  On 6 October 2005, the purchaser’s solicitors replied to the requisition as follows:

“

We note that New Grant No. 4699 was dated 13th November 1969.  Pursuant to Section 14(2) of the Conveyancing and Property Ordinance, any conditions precedent of New Grant No. 4699 should be deemed to have been complied with on 1st November 1984.  Therefore, production of Certificate of Compliance of the said New Grant is unnecessary in proving title to the above property.”

9.  This reply was not accepted.  On 10 October 2005, the purchaser’s solicitors maintained:

“	Production of the Certificate of Compliance is necessary.  Section 14(2) of the Conveyancing and Property Ordinance does not dispense with the physical production of certificate of compliance or other matters of title.”

10.  There ensued further correspondence in which the parties reiterated their previous positions.  The vendors’ solicitors also noted that no Certificate of Compliance of the New Grant had been registered in the Land Registry.

11.  The matter was unresolved by the deadline for completion on 28 October 2005.  On that day, the purchaser’s solicitors accepted the vendors’ alleged repudiation of the agreements and demanded the return of the deposits paid.  A few days later, on 2 November 2005, the vendors’ solicitors determined and rescinded the agreements on the ground of the purchaser’s alleged failure to complete and forfeited the deposits.

12.  Subsequently, the purchaser issued three originating summonses relating to the three agreements respectively.  These proceedings were later consolidated.  The vendors lodged counterclaims.  The reliefs claimed by the purchaser and the vendors respectively included declarations that the other party or parties had repudiated the agreements and that such repudiation had been accepted as well as damages.  The purchaser sought a declaration of its entitlement to the return of the deposits, whilst the vendors claimed a declaration of its entitlement to their forfeiture.

The courts below

13.  Before the Judge (Deputy Judge L Chan), the vendors succeeded.  The purchaser’s appeal to the Court of Appeal (Rogers VP, Le Pichon JA and Barma J) was dismissed.  By a consent order, the purchaser was granted leave to appeal as of right to the Court.

The question

14.  The requisition called for the production of a certified copy of the Certificate of Compliance of the New Grant (“the Certificate of Compliance”).  The vendors’ answer stated that production of such a Certificate was unnecessary for proving title, relying on s. 14(2) of the Ordinance.  The question is whether this answer was satisfactory.  If so, the vendors had shown good title.  If not, they had failed to do so.  The matter turns on the proper interpretation of s. 14(1) and 14(2).

The statutory provisions

15.  Section 14(1) provides:

“	Where a person has a right to a Government lease of any land upon compliance with any conditions precedent, then, upon compliance with those conditions –
	(a)	the equitable interest under that right shall become a legal estate in that land as if held under a Government lease issued in accordance with that right; and
	(b)	for the purposes of section 42 and any other law, such a Government lease shall be deemed to have been issued upon compliance with those conditions.”

Section 42(1) and 42(2) preserve, after the issue of Government leases, the effect of prior instruments, that is, instruments entered into and taking effect after an agreement for a Government lease but before the issue of such lease, and the effect of their registration under the Land Registration Ordinance, Cap 128.

16.  For s. 14(1) to be engaged, there must be a right to a Government lease of land upon compliance with the prescribed conditions precedent.  Where there is such a right, then upon compliance with the conditions precedent, two consequences follow by operation of law.  First, the equitable interest is converted into a legal estate as if held under a Government lease issued in accordance with the right.  Secondly, for the purposes of s. 42 and any other law, a Government lease shall be deemed to have been issued upon compliance with the conditions precedent.  The triggering event for these consequences is compliance.  These legal consequences follow from compliance, notwithstanding that a Government lease has not in fact been issued.  Section 14(2) and 14(3) may be regarded as provisions supplementary to s. 14(1).  They provide for the means for establishing compliance with the conditions precedent.  Section 14(2) applies to agreements for Government leases entered into before 1 January 1970 whereas s. 14(3) applies to agreements entered into on or after that date.

17.  Section 14(2) provides:

“

Where, under an agreement for a Government lease entered into before 1 January 1970, a person has a right to a Government lease upon compliance with any conditions precedent he shall be deemed, for the purposes of this section, to have complied with those conditions on the commencement of this section.”

The section commenced on 1 November 1984.  Under s. 14(2), the person, who under a pre-1 January 1970 agreement has a right to a Government lease upon compliance with the conditions precedent provided for therein, “shall be deemed for the purposes of this section to have complied with those conditions” on 1 November 1984.  The phrase “for the purposes of this section” is a reference to the purposes of s. 14(1).  Thus there is deemed compliance on 1 November 1984 with the conditions precedent.  Under s. 14(1), such compliance triggers the legal consequences provided for therein.

18.  Section 14(3)[1] relates to agreements for Government leases entered into on or after 1 January 1970.  In contrast to the deeming of compliance for pre-1 January 1970 agreements, s. 14(3) provides for various methods of establishing compliance.  Under this provision, the person concerned “shall be deemed for the purposes of this section” to have complied with the conditions precedent in one of three ways.  One of them is the issue by the Government of a certificate that the conditions have been complied with and the registration of that certificate in the Land Registry under the Land Registration Ordinance.  The phrase in s. 14(3) of “for the purposes of this section” is again a reference to the purposes of s. 14(1), that is, in order to establish compliance so that the legal consequences set out therein would flow.

19.  Thus, s. 14(2) and 14(3) provide for different ways of establishing compliance for pre- and post-1 January 1970 agreements respectively.  For the former, s. 14(2) deems compliance to have occurred on 1 November 1984.  For the latter, s. 14(3) provides for the type of document required and its registration in the Land Registry.  The reason for this distinction is that whilst the practice has been to issue certificates of compliance for post-1 January 1970 agreements, there was no such practice for pre-1 January 1970 agreements.  In his letter dated 7 November 1984 to the Law Society which was intended to be and was circulated to its members, the Registrar General (Land Officer) explained:

“	The 1st January 1970 was chosen as a ‘cut off’ date for this purpose because it is believed that in almost all instances subsequent to that date the certificate of compliance has in fact been issued by the Government upon compliance with the General and Special Conditions.”

Application of the statutory provisions

20.  Section 14(1) and 14(2) apply in the present case.  Under the New Grant, the grantee undoubtedly has a right to a Government lease upon compliance with the conditions precedent contemplated therein.  Since the New Grant was a pre-1 January 1970 agreement, s. 14(2) applies so that for the purposes of s. 14(1), the grantee is deemed to have complied with the conditions precedent on 1 November 1984.

The scope of the requisition

21.  In dealing with a dispute concerning title such as the present one, the court must approach the matter

“	from the stand-point of a willing purchaser and a willing vendor, both possessed of reasonably robust commonsense, both intending to see the transaction through to completion in terms of their own bargain.”

Mexon Holdings Ltd v Silver Bay International Ltd (2000) 3 HKCFAR 109 at 117E.

22.  “Requisitions on title must be formulated with reasonable precision if they are to be effective.”  Chan Chik Sum v Great Pearl Industries Ltd [1997] 1 HKC 27 at 33 C-D.  In considering whether the requisition was satisfactorily answered, the starting point must be to consider its scope.  The question is what a reasonable conveyancer would regard the requisition to mean.

23.  The requisition called for the production of a certified copy of the Certificate of Compliance of the New Grant.  General Condition 10 conferred on the grantee a right to a Government lease upon compliance with conditions precedent contemplated therein. Considering the requisition in the context of the New Grant, a reasonable conveyancer would regard it to be directed at the production of a certificate issued on behalf of the Government to show compliance with the conditions precedent therein which would entitle the grantee to a Government lease.  The requisition properly considered did not have any wider scope.

Purpose of the provisions

24.  Mr Thomas SC for the purchaser submits that the requisition  had not been sufficiently answered.  The linchpin of his submission is that s. 14(1) has a limited purpose.  Where there is a right to a Government lease upon compliance with conditions precedent, he contends that the only purpose of s. 14(1) is to effect upon compliance the conversion of the equitable interest to the legal estate.  In support, he relies on the heading to s. 14[2] and the Explanatory Memorandum to the bill[3].  Having regard to this limited purpose, it is argued that where compliance is deemed by s. 14(2) to have occurred on 1 November 1984 for pre-1 January 1970 agreements, this only achieves the conversion to the legal estate.  And it remains necessary to produce a certificate to show compliance; if such a certificate cannot be produced, secondary evidence of compliance would be necessary.

25.  If the purchaser’s argument is correct, such a certificate or secondary evidence must be produced, notwithstanding that as previously noted, there was no practice of issuing certificates of compliance for pre-1 January agreements and that compliance with conditions precedent for pre-1 January 1970 agreements would have occurred a long time ago.

26.  To ascertain the true purpose of s. 14(1), it is important to understand the background to its enactment.  On disposal of land by Government, the agreement contained in the Conditions of Grant usually provides that the grantee has a right to a Government lease upon compliance with the conditions precedent provided for therein.  But upon compliance, the normal practice has been that no formal Government lease is issued[4].  Legislation was necessary to provide a solution to deal with this situation.  The purpose of s. 14(1) was to render the legal position to be the same as that which would have resulted from the actual issue of a Government lease upon compliance with the conditions precedent, notwithstanding that no lease is in fact issued.  To legislate for the same legal position, s. 14(1) provides that upon compliance, not only is the equitable interest converted into the legal estate but also that for the purposes of s. 42 and any other law, such a Government lease shall be deemed to have been issued upon compliance.

27.  The purpose of s. 14(1) is thus not limited to achieving the conversion of the equitable interest into a legal estate and the purchaser’s argument that its purpose is so limited must be rejected.  In this context, the heading does not assist.  It does not have any legislative effect and does not in any way vary, limit or extend the interpretation of s. 14.  Section 18(3) of the Interpretation and General Clauses Ordinance, Cap 1.  A heading is necessarily brief.  In this instance, it is an incomplete guide to the section.  The Explanatory Memorandum is similarly insufficient and is of no assistance.

“Any other law”

28.  Mr Thomas further submits that the operation of s. 14(1) is in any event limited.  Section 14(1)(b) provides that the deemed issue of a Government lease upon compliance with the conditions precedent is “for the purposes of section 42 and any other law”.  Mr Thomas argues that the phrase “any other law” is confined to statutory provisions such as s. 42 which expressly refer to the issue of a Government lease.  This argument cannot be accepted.  The phrase must be interpreted consistently with the true purpose of the provision as discussed above.  So interpreted, it cannot be so limited and includes not only all statutory provisions but also the common law and rules of equity.

Effect of provisions

29.  Interpreting s. 14(1) consistently with its true purpose, its effect is that, where there is a right to a Government lease upon compliance with conditions precedent, the legal consequences which follow from compliance include both (a) the conversion of the equitable interest into a legal estate as if held under a Government lease issued in accordance with the right thereto and (b) for the purposes of statutory provisions, the common law and rules of equity, such a Government lease shall be deemed to have been issued upon compliance with those conditions.  For the New Grant, which was pre-1 January 1970, s. 14(2) deems compliance with the conditions precedent to have taken place on 1 November 1984 for the purpose of s. 14(1).  Thus, both legal consequences resulted from the deemed compliance on that date.  This includes the deemed issue of a Government lease on 1 November 1984 for the purposes referred to above.  It is plain from s. 14(1), which contains three references to “upon compliance”, that the deemed issue of a Government lease on that date was on the basis that the conditions precedent had been complied with.

Answer to requisition

30.  Having regard to the conclusions above on the interpretation of s. 14(1) and 14(2), it follows that the requisition had been satisfactorily answered and that the vendors had shown good title to the properties in question.  The requisition called for the production of a certificate to show compliance with the conditions precedent provided for in the New Grant which would entitle the grantee to a Government lease.  As the answer to the requisition stated, production of such a certificate of compliance was unnecessary.   Section 14(2) deemed compliance to have taken place on 1 November 1984.  Such deemed compliance triggered the legal consequences in s. 14(1) including for the purposes of statutory provisions, the common law and rules of equity, the deemed issue of a Government lease on the basis of that the conditions precedent had been complied with.

31.  Mr Thomas also relies on s. 66(1)[5] of the Interpretation and General Clauses Ordinance to argue that s. 14(1) and 14(2) should not be construed to adversely affect the position of the Government.  The present dispute is not between the Government and its lessee and it is unnecessary to decide whether and if so, the extent to which Government’s position is affected by s. 14(1) and 14(2) in relation to taking action for breaches prior to 1 November 1984 of conditions precedent in pre-1 January 1970 agreements which would entitle the lessee to a Government lease.  It should be noted that some breaches may be regarded as continuing breaches by reason of their nature or may be deemed to be continuing breaches by virtue of a provision such as General Condition 8.

Disposal

32.  Accordingly, the appeal should be dismissed with costs.  An order should be made for the release of the monies paid into court by the respondents together with interest thereon.

Mr Justice Bokhary PJ:

33.  I agree with the judgment of the Chief Justice.

Mr Justice Chan PJ:

34.  I agree with the judgment of the Chief Justice.

Mr Justice Ribeiro PJ:

35.  I agree with the judgment of the Chief Justice.

Mr Justice McHugh NPJ:

36.  I agree with the judgment of the Chief Justice.

Chief Justice Li:

37.  The Court unanimously dismisses the appeal with costs and makes an order for the release of the monies paid into court by the respondents together with interest thereon.